A ROI-Oriented Social Media Strategy

Posted on October 7th, 2010

When social media were first established as a marketing tool, businesses treated it with an experimental mentality, trying to figure out what works and what does not work. But as social media start to reach a mass market of consumers and more businesses are adding their Facebook pages and Twitter accounts everyday, poking around with social media is no longer sufficient in bringing a competitive advantage. Instead, it is time to consider a well-thought out social media strategy, as Brian Solis argues well in his blog that a company’s social media elements need to be part of a master plan. Here, I go one step further and argue that, simply having a social media strategy is not enough; it is also necessary to incorporate ROI into the strategy, in what I call a ROI-oriented social media strategy. This is different from running a social media campaign and then figuring out how to measure its return as an afterthought. Instead, ROI is an explicit element of the strategy right from the start.

Why ROI-oriented social media strategy?

Because it is a sound business decision. Just like savvy investors who would not jump into the market without a target in mind, a company’s social media strategy should not be without the guidance of clearly-defined returns. After all, if social media spending are to increase as fast as 34% a year, as Forrester Research predicts to be the case between 2009 and 2014, it is important to know that that money is not just thrown away to chase after some fad.

Another advantage of having a ROI-oriented social media strategy is company internal support. Not every organization welcomes social media with open arms. While on first look, many social media channels do not charge businesses a fee for using them, engaging in social media requires major investment in human resources and man hours, in order to effectively listen to the social media space and to turn the information thus gained into actionable business intelligence. When a social media strategy has ROI in mind right from the start, it will be much easier to gain top management support and consequently the resources needed to make it successful.

Key pointers for a ROI-oriented social media strategy

The initial step to a ROI-oriented social media strategy is to have clearly defined, measurable goals in mind as the strategy is developed. What does the company want to achieve on Facebook? What is the relevance of YouTube? In the book How to Make Money with Social Media, the authors Jamie Turner and Reshma Shah argue that it is important to look beyond mere brand awareness as one defines social media goals. Instead, different social media components should work together to contribute to getting users to take action and eventually conversion. The book further explains how the various social media tools can be used for their ability to network, promote, and share. I won’t repeat it all here. But it suffices to say that realistic and measurable goals are key to a ROI-oriented social media strategy, instead of trying to figure out what to measure after the fact.

Another important thing to remember is that ROI ≠ short-term financial return. It is easy to confuse the two and to ask that every social media campaign generates a certain amount of sales and profit. While that would be nice, ROI goes much beyond instant sales and profit. Instead, it can incorporate a wide array of other measurements such as customer engagement, brand image, research insight, etc. In the long run, these will turn into healthy profit increase for the company. But focusing solely on short-term financial return will miss the hidden opportunities offered by social media, such as its ability to build customer goodwill and emotional loyalty.

In a recent article in MIT Sloan Management Review, Professor Donna Hoffman and Mr. Marek Fodor offer a useful list of ROIs to measure for different social media platforms under various goal categories. Most importantly, they argue that social media ROI differ from traditional marketing ROI in that it needs to be more customer-focused. In other words, customers’ needs and motivations should be the first consideration in social media strategy development. Then when it comes to measuring ROI, it is not about how much the company invests into social media, but rather how much customers are investing into social media (e.g., market mavenism, dialogue with the company) that is a true indicator of social media campaign success.

An effective social media campaign needs to be guided by ROI. In this post, I’ve discussed some of the fundamental aspects of a ROI-oriented social media strategy. There is much more to be said on this topic beyond a blog post. What is your take on social media ROI? What does your company measure? Please do share your thoughts.

Mr. Turner, thanks for the comment. I enjoyed very much reading your book. It is about time that social media marketing goes beyond the laboratory, and I believe being mindful of ROI issues will help us get there faster.

Thanks for this great Post!
I fully agree it is important to avoid the flatening confusion of the two traditional marketing objectives: making money and getting ROI when it comes to social media…
I enjoyed reading the SM ROI point you make from the one from Hoffman and Fodor’s SMR article, stressing that SM ROI need to be even more customer-focused than traditional marketing ROI indicators, with the 2 ensuing consequences:
– customers’ needs as first consideration of SM strategy
and
– customers’ investment (vs company’s investment) focus for measuring ‘genuine’ SM ROI.

Marek, I enjoyed reading your article. I have not heard too much about new ROI measurements. One general consensus seems to be the ROI not equal to short-term $ opinion. In the long run, other consumer-centric measures seem to be more effective, which goes with a more relationship marketing and loyalty-oriented approach.

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Yuping Liu-Thompkins, Ph.D. is Professor of Marketing & E. V. Williams Faculty Fellow at Old Dominion University. Dr. Yuping Liu-Thompkins is an expert on building customer loyalty and habit through effective marketing programs. She specializes in turning customer data into useful customer insights and actionable customer relationship management and marketing strategies. With a personal passion for technology, Dr. Liu-Thompkins is also known for her expertise in Internet marketing, especially the use of social media for branding and customer engagement purposes. More information about Dr. Liu-Thompkins can be found on her website Yuping Online.